WHAT'S NEXT

WHAT'S NEXT; Paying for Car Insurance by the Mile

By ANNE EISENBERG

Published: April 20, 2000

ELECTRICITY bills depend on how much electricity is used each month. Soon auto insurance premiums, too, may be metered, based partly on how much the car is driven.

That is the goal of Progressive Auto Insurance, which is testing a system that uses Global Positioning Satellite technology to track when, where and how much its auto insurance customers drive -- and then charges them accordingly. A pilot version of the program is being tested in Texas.

The system is the brainchild of Robert J. McMillan, a business development leader at Progressive, a major auto insurance company based in Mayfield Village, Ohio.

''It's very simple,'' Mr. McMillan said. ''The less you drive, the less you pay.''

Mr. McMillan came up with the idea of metered car insurance five years ago when he found out that G.P.S. technology could be used to recover stolen cars. ''It occurred to me that we could record driving behavior and patterns and then offer insurance by the mile,'' he said. The company has been awarded two patents for the way it electronically retrieves data from vehicles and uses that information to set insurance rates.

About 1,100 people in Texas have signed up for a test run of the program since it began 18 months ago.

One of them is Gus Kopriva of Houston, who owns four cars. ''I'm saving a lot of money,'' he said. ''I use some of the cars intermittently, and when I do, I pay.''

The average user saves about 25 percent, Mr. McMillan said. ''When people live close to work or have multiple vehicles, car-pool or use public transportation, they can save even more,'' he said.

The time of day affects the cost. ''A mile driven at 2 a.m. is four or five times more expensive than one driven at 7 a.m.,'' Mr. McMillan said. ''Our data show accident rates per mile are much higher later in the night.'' Commuting trips to work are cheapest because the trips occur on familiar routes in relatively slow traffic.

Mr. McMillan said even customers who drove long distances could save money on their current rates by avoiding nighttime driving.

The proprietary system used by Progressive includes a G.P.S. receiver, cell-phone modem and a microprocessor with a small amount of computer memory.

The miniprocessor uses the G.P.S. receiver to record the car's location -- latitude and longitude -- and the date and time every six minutes while the car is being driven. Once a month the company computer calls the car through the cell-phone modem and retrieves the records of the month's travel activity.

''Then we generate a bill that is similar to a utility bill, based on your use,'' Mr. McMillan said. Twenty-five percent of the fee represents standard insurance charges for damage and theft coverage -- taking into account factors like age, number of moving violations, the driver's sex and the type of car -- and the remainder is based on use.

''Traditionally, rates are based on variables like gender and age,'' he said. ''We think how you actually use your car is more relevant.''

The system cannot fix a flat yet, but it can unlock a locked car; car owners who are locked out can place a call to the monitoring center, which relays a command to the microprocessor through the modem to tell it to open the doors. And if battery power runs low, the microprocessor can use the modem to notify the company's central computer so an employee can call the car's owner. The system can also provide more standard G.P.S. services like navigation, as well as a panic button linked to a 24-hour communication system with a live person to handle emergencies.

The tradeoff for all that convenience and potentially lower insurance costs is privacy, some say. After all, the system knows when you are sleeping and when you are awake. It also knows when a driver has been good or not, at least in terms of speeding, and perhaps in other areas as well.

''I'm not bothered by the lack of privacy,'' Mr. Kopriva said. ''That only bothers people with something to hide -- for instance, if they are having an affair or running drugs.'' Mr. Kopriva said he was glad that the system kept track of his cars for him. ''That would come in very handy if one of them was stolen,'' he said.

While Mr. Kopriva dismissed privacy issues, Steven Goldstein, a spokesman for the Insurance Information Institute, a trade group, predicted that some customers would not want an insurance company to have specific information about their driving habits.

''Some people will find it invasive,'' he said. ''But others will be thrilled to death because they will save money.''

Americans pay about $125 billion each year in premiums for auto insurance. ''You can't drive your car without it,'' Mr. Goldstein said. ''And most Americans do have a car -- except for those under 21, in jail or living in New York City.'' He said the new program was noteworthy because it gave this huge pool of involuntary shoppers more options. ''The more choices drivers have, the better off they will be as consumers,'' he said.

Progressive guarantees that the information gathered by the system will be used only to assess insurance rates and will not be provided to anyone else without the insured person's consent, Mr. McMillan said.

Still, the specificity of the details recorded is bound to raise thorny problems. For instance, the system will know whether the car stopped at a bar or was near the scene of a crime. And such information could be subpoenaed.

Progressive is talking to state insurance commissions about expanding the program beyond the test market. The company is also talking with auto makers about incorporating the system into cars at the factory. At present, Progressive pays the $500 cost of installing the system on each customer's car.

If drivers using the new system drive less, that will help the environment. Allen Greenberg, a policy analyst at the Environmental Protection Agency in Washington, said initial studies done by the agency suggested that the amount of driving people did was related to fuel price. He added: ''We anticipate anywhere from a 10 to 20 percent driving reduction when the fixed cost of driving is shifted to a variable one.

''The environmental potential here is very great. The program offers financial incentives to drive less and therefore reduce pollutants and improve air quality.''